In a show of support for frontline workers, the government has temporarily suspended tax rules for pensions that could have previously affected returning NHS workers.
This does not constitute advice and advice should be sought in all instances before acting on it. The Financial Conduct Authority does not regulate tax advice.
Changes to the tapered allowance
In response to concerns over the effect the tapered annual allowance had on many high-earning doctors and dentists, the government introduced new tapering rules in this year’s budget. This was meant to encourage NHS workers who may have retired due to fears of reduced pensions to return to work.
Suspension of pension tax rules
In addition, the recent coronavirus bill specifically included measures to allow NHS staff returning to work the ability to receive full pension payments. Taking it one step further amidst the coronavirus pandemic, the government proposed temporary suspension of pension tax rules to ensure no negative consequences for workers returning to the frontline during the crisis.
The rule suspension pertains to protected pension ages for those who return to the same line of work within 6 months of retiring. Before 6 April 2006, members who had a protected pension age were able to take their benefits at an earlier pension age than is currently permitted.
If you have a protected pension age of less than 50 (when the current minimum is 55) then your lifetime allowance could be reduced and you may be liable for a hefty tax bill for exceeding your allowance. On top of all that, there was a risk of losing your protected pension age altogether for returning to the same job after you retired.
What’s the catch?
It’s important to note that:
- the suspension is indeed temporary,
- only affects retirees between 50 and 55, and
- only applies to payments made from 1 March to 1 June 2020 to workers returning to their roles because of COVID-19.
Could these measures be long-term?
Experts are in agreement that these short-term measures are incredibly beneficial and there is really no other option for frontline workers.
The current rules surrounding pensions are unnecessarily complicated and revisiting the pension laws completely once the world returns to a state of normalcy should be a priority as the new rules from the 2020 Budget were a step in the right direction but they didn’t fully solve the issue.
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